The financial situation of municipalities in Germany has significantly deteriorated in the past two years, according to the KfW’s Communal Panel. In the fiscal year 2024, 36% of municipalities described their economic situation as “poor” an increase of two percentage points from the previous year and eight percentage points from 2022. Furthermore, 24% of municipalities reported that their finances were only “satisfactory” an increase of two percentage points from 2022. Only four out of ten municipalities consider their situation in 2024 to be “satisfactory” or better, compared to half of the municipalities in 2022.
The KfW also found that the percentage of municipalities describing their situation as “poor” increases with the population size. While it is 34% for small municipalities (2,000 to 5,000 residents), the percentage rises to 56% for cities with more than 50,000 inhabitants.
According to the KfW, 84% of treasuries expect a “rather unfavorable” or “very unfavorable” financial situation for the current fiscal year 2025, similar to the previous year. The proportion of municipalities expecting a “rather” or “very unfavorable” financial situation over the next five years remains at 91%, the same level as the previous year but higher than two years ago.
The KfW also noted a significant shift within the pessimistic group: The percentage of municipalities expecting a “very unfavorable” development over the long term increased by 14 percentage points compared to the previous year, while the percentage of municipalities with the assessment of “rather unfavorable” decreased by 11 percentage points.
Dirk Schumacher, Chief Economist of the KfW, stated, “The financial prospects for municipalities have worsened again and significantly. With financial uncertainty, it is expected that municipalities will reduce their investment activities.” He added, “The federal government’s Infrastructure Special Fund can contribute to reducing the accumulated investment backlog. However, it is also urgent to address the numerous structural financing challenges facing municipalities.”
The KfW Communal Panel is an annual representative survey of treasuries conducted by the German Institute for Urban Affairs (difu) on behalf of the KfW. In the first quarter of 2025, a total of 2,839 municipalities with more than 2,000 residents were surveyed, with a response rate of 34%.